maandag 26 juni 2017

Italy Bank Bailouts Send European, Global Stocks Higher; Gold Flash Crashes

S&P futures point to a higher open following gains in Asian markets supported by stronger commodities but mostly European bourses, which are sharply higher following the €17 billion bailout of the two Veneto banks in Italy, the biggest taxpayer funded bank rescue in modern Italian history, as well as Dan Loeb's activist campaign of the world's biggest food company, Nestle which sent the stock up 5%, and finally Germany's Ifo business climate index which hit new all time highs. Risk sentiment is broadly higher thanks to European equity markets which have rallied strongly from the open led by the Italian banking sector following the Veneto banks resolution. As shown in the chart below, EutoStoxx banks are about 2% higher as markets celebrate the return of taxpayer bailouts and the apparent death of Europe's bail-in regime...


The bailout capped a weekend in which Italy's center-right parties were the big winners in mayoral elections on Sunday, in a vote likely to put pressure on the center-left government ahead of national elections due in less than a year. In the most closely watched contest, the northern port city of Genoa - a traditional left-wing stronghold - seemed certain to pass to the center-right for the first time in more than 50 years. The candidate backed by the anti-immigrant Northern League and Silvio Berlusconi's Forza Italia party will get around 54 percent of the vote, compared with 46 percent for the candidate backed by the ruling Democratic Party (PD), according to final projections based on the vote count. However Italian BTPs rallied with domestic banks, ignoring mayoral election results, BTP/bund spread tightens 2.0bps and iTraxx Crossover tightens 2.5bps. As a result of Italy's historic bailouts, default probabilities across virtually all Italian banks tumbled...


The Stoxx Europe 600 Index rallied 0.7% led by food and beverage shares and Nestle SA after hedge fund Third Point announced on Sunday it had amassed a $3.5 billion stake in the region’s biggest company and was going activist. Nestle (25% of SMI) rose ~5% after Third Point took a $3.5b stake, providing further lift to risk sentiment. The MSCI Asia Pacific Index rose 0.2 percent, with Hon Hai Precision Industry Co. jumping 6.7 percent to lead an advance among technology shares. Taiwan’s Taiex index rallied 1.3 percent to the highest since 1990, while South Korea’s Kospi increased 0.4 percent to a record. Markets in India, Singapore and throughout much of Southeast Asia were closed for a holiday. Sterling declined as battle lines appeared to harden just a week into Brexit negotiations, and as Theresa May prepared to spell out how EU citizens living in the U.K. will be protected in Brexit. Large spike lower in spot gold, amid little news, became a market focus with USD rallying in tandem. USD/JPY well supported breaking towards 100DMA at 111.80. USTs consequently pressured lower with Eurodollar curve bear steepening. As noted earlier, the big story in commodities this morning was the larger order in Gold futures going through the CME, with up to 20k contracts hitting the yellow metal USD20.0 lower to hit levels just under USD1240...


The timing of the move created the volatility, as in terms of volume, this was a relatively moderate amount when taking into account daily volumes, and many see this little more than an exercise in tripping stops through some notable levels on the charts. The 200dma circa USD1237.00 held firm though. On the day, we are still down net 1%, as is Silver, with Platinum and Palladium are also lower by a similar amount. Crude futures hold overnight gain, up 0.8% to trade around $43.35bbl. In FX, the yen fell 0.4 percent to 111.68 per dollar. The pound increased slipped 0.1 percent to $1.2710. The euro weakened 0.1 percent to $1.1182. The Bloomberg Dollar Spot Index rose 0.1 percent after three days of declines. In economic news, the German June IFO Business Climate rose to new all time highs, hitting 115.1 vs 114.5 est; Expectations also beat (106.8 vs 106.4 est); as did the Current Assessment at 124.1 vs 123.2 est...


Over in the UK, a deal between Theresa May and the DUP was finally confirmed according to Bloomberg. Brexit Minister Davis stated he opposes EU demands that its judges retain ability to safeguard 3.2mln EU nationals living in UK after 2019 Brexit. Davis added that tourists will be guaranteed free health cover when they are on holiday in the EU. UK Press also reports that PM May will ensure that thousands of EU criminals will face deportation after Brexit as a key demand when she publishes a 15 page document detailing how she intends to protect the rights of 3.2mln EU nationals residing in Britain. ECB's Weidmann said an extension of QE has not been discussed and that the time may be approaching for the ECB to exit stimulus if the Euro area economy develops as expected. In rates, the yield on 10-year Treasuries rose one basis point to 2.16 percent. U.K. benchmark yields were little changed at 1.03 percent. Italian yields fell three basis points to 1.88 percent.
# Bulletin headline Summary from RanSquawk;
- European equities begin the week on the front foot led by Italian banking names and Nestle
- GBP has pre-empted source reports suggesting a deal between the Conservatives and the DUP will be announced later today
- Looking ahead, highlights include German IFO, US Durables and ECB's Draghi
# Market Snapshot;
- S&P 500 futures up 0.2% to 2,440.75
- STOXX Europe 600 up 0.7% to 390.32
- Nikkei up 0.1% to 20,153.35
- Topix up 0.05% to 1,612.21
- Hang Seng Index up 0.8% to 25,871.89
- Shanghai Composite up 0.9% to 3,185.44
- German 10Y yield fell 0.3 bps to 0.252%
- Euro down 0.03% to 1.1191 per US$
- Brent Futures up 1% to $46.01/bbl
- Italian 10Y yield rose 1.0 bps to 1.627%
- Spanish 10Y yield rose 0.4 bps to 1.385%
- Gold spot down 0.9% to $1,244.94
- U.S. Dollar Index up 0.08% to 97.34
*) Top Overnight News;
- Italian banks: govt. commits up to EU17b to clean up failed Veneto banks; will be split into good and bad banks, Intesa Sanpaolo acquires good assets for token amount
- Italy: Berlusconi party and center right allies perform well in second round of local mayoral elections; of 16 larger cities which had Renzi party-backed mayors, 12 switched to the centre-right
- German Jun. IFO Business Climate: 115.1 vs 114.5 est; Expectations 106.8 vs 106.4 est; Curr. Assessment 124.1 vs 123.2 est.
- Fed’s Williams: transitory factors have been pulling inflation lower recently; very strong labor market actually carries with it the risk of the economy overheating
- ECB’s Weidmann: ECB must resist any outside pressure to continue loose monetary policy longer than needed; council hasn’t discussed possible extension of bond- buying program
- U.K.: Deal between Conservatives and DUP expected by “lunchtime” today: BBC
- House Defense Panel Proposes $18.4b Boost to Pentagon Budget
- Modi Meets Top U.S. CEOs Including Apple’s Cook, Amazon’s Bezos
- Fed’s Williams Sees Interest Rates Rising as Inflation Moves Up
- EU Said to Decide on EU1B Fine for Google on Wednesday: FT
- These Are the U.S. Cities Where It Costs Too Much to Build
- Corporate Tax Rate at 28% Seen as More Likely Than Historic Cut
- McConnell’s Health Bill Gamble Hinges on Converting GOP Holdouts
- Lithuania’s LDT Buys LNG Cargo From U.S. Cheniere Marketing
- Enterprise’s Seaway Legacy Crude Pipeline Said to Resume Service
- Bristol-Myers Phase 3 Follow-Up Shows L/T Efficacy of ELd
- U.S. Asks Supreme Court to Overturn Microsoft Email Ruling
- Nasdaq Offers Data on Russell Reconstitution for Listed Shares
*) Asian equity markets traded higher across the board, following the mostly positive Wall St. close on Friday where tech outperformed and energy snapped a 4-day losing streak. In Asia, Nikkei 225 (+0.1%) saw minor upside after USD/JPY recovered from opening losses and ASX 200 (+0.1%) was also in the green as utilities and consumer staples kept the index afloat. Elsewhere, Shanghai Comp. (+0.6%) and Hang Seng (+0.4%) led the positive tone in the regions as financials outperformed, despite the PBoC refraining from OMOs for the 2nd consecutive session. 10yr JGBs saw minor gains amid the BoJ's presence in the market for JPY 550b1n of JGBs mostly concentrated in the 5yr-10yr range, while the curve was mixed with outperformance in the belly. BoJ Summary of Opinions from June 15-16th said that Japan's economy has been turning towards a moderate expansion and that the most effective way to reach inflation goal is to continue with the current monetary policy. BoC skipped open market operations
# Top Asian News;
- As Airbag Crisis Spirals, Takata Files for Bankruptcy Protection - Rio Backs Yancoal’s Improved Offer for Coal Mines Over Glencore
- Naver, Mirae Asset to Buy 500b Won of Shares in Each Other
- Japanese Banks at Risk as Dollar Borrowing Doubles, BIS Says
- Takashimaya Reports 1st Qtr Group Earnings Result
- China to Step Up Scrutiny of Outbound Investments, Xinhua Says
- Nomura CEO Nagai Gets Record Pay After Reviving Overseas Profit
- Thai Airways Aims to Buy Almost 30 Planes to Modernize Fleet
- Toshiba Chip-Unit Bidders Said to Push Back Final Agreement
*) European equities begin the week on the front foot led by banking names after Italy began winding up two failed regional banks over the weekend in a deal that could cost the state as much as EUR 17bIn. Elsewhere, Nestle shares are at record highs this morning following reports that Third Point have purchased a USD 3.5bIn stake in the Co, also supporting L'Oreal shares as Nestle holds a 23% holding. This comes despite reports that Third Point may urge Nestle to offload their stake in L'Oreal. Across fixed income markets, EGB's have been slightly dented by the risk on appetite, which the German curve has seen some modest underperformance in the belly of the curve. Within peripheral markets, BTP's are outperforming Bono's following the weekend bailouts of the troubled Italian banks. 
# Top European News
- Nestle Targeted by Activist Third Point With $3.5 Billion Stake
- NN Mis-Selling Case May Require EU500m in Compensation, CS Says
- Romanian Ruling Party Head Says He Has 5-6 Candidates for New PM
- ‘Overvalued’ U.K. Bonds Running Out of Reasons to Rally Further
- Hammerson Rises After Report That Whittaker Builds Stake
- What One Premier’s Demise Says About Who Runs Europe’s East
- Russia Tycoon to Buy Holland & Barrett for $2.3 Billion
- Investment Funds Said to Show Interest in Cortefiel:Confidencial
- Morgan Stanley May Add 200 Jobs in Frankfurt Over Brexit: WamS
# In currencies, Monday has seen the usual order testing flow in the markets, with few leads to go off as the bulk of the data slate is stacked up towards the end of the week. Early EUR/USD tests through 1.1200 have failed to generate any fresh momentum, but this has come through a fresh bid in USD/JPY, taking the lead over the cross rates to a modest degree. GBP has pre-empted source reports suggesting a deal between the Conservatives and the DUP will be announced later today, Cable has struggled through the 1.2750 level as there is plenty of interest to sell on the upside with such a lengthy period of uncertainty ahead. EUR/GBP is pushing back to 0.8800 also, but in both cases, we can only see tight ranges, in relative terms playing out, but any announcement alluding to the above will see a GBP bid, temporarily at the very least. In the commodity linked currencies, we have seen some early signs of exhaustion in the NZD, but this may be coming through the AUD/NZD rate as we suggested, but the move above 1.0400 is sluggish as yet. NZD/USD continues to struggle ahead of 0.7300, but AUD/USD also faces resistance closer 0.7600.
# In commodities, the big story in commodities this morning was the larger order in Gold futures going through the CME, with up to 20k contracts hitting the yellow metal USD20.0 lower to hit levels just under USD1240. The timing of the move created the volatility, as in terms of volume, this was a relatively moderate amount when taking into account daily volumes, and many see this little more than an exercise in tripping stops through some notable levels on the charts. The 200dma circa USD1237.00 held firm though. On the day, we are still down net 1%, as is Silver, with Platinum and Palladium are also lower by a similar amount. Copper has given back some ground, but only after tipping USD2.65 in the move higher. Zinc and Lead outperform on the day however. Oil prices stabilising thankfully, with WTI now settling in the mid USD43.00's, with Brent back above USD46.00 for now. No change in the overall drivers (US shale) in sentiment however, so we remain wary of the sustainability in current levels.
# Looking at the day ahead, this afternoon in the US the most significant release is the May durable and capital goods orders reports, while the Dallas Fed manufacturing survey will also be released later this afternoon....